A bailout for those who can learn rather than those who can posture

NationalPost.com – Opinion/Full Comment – John Ivison: A bailout for those who can learn rather than those who can posture
Posted: December 16, 2008. John Ivison, Canadian politics

The Conservative Party has never believed government should be in the business of governing business. But, with the Fed’s last throw of the monetary policy dice on Tuesday, which reduced the federal funds rate close to zero, the power of central bankers to influence the course of this crisis has almost played itself out.

Now it’s time for fiscal policy. Even governments that are reluctant to intervene are being forced to draw up plans to restore confidence in an economy whose every curve is taken for a bulge.

There is no shortage of candidates for federal largesse. On Tuesday, the Ontario Manufacturing Council suggested that nearly 600,000 jobs could be lost if the Big Three automakers are allowed to fail. Ontario’s Economic Development Minister, Michael Bryant, said that governments need to provide CPR to avoid a catastrophe that would lay waste to the entire auto supply chain.

Meanwhile, in Ottawa, the forestry industry warned that it needs a package of tax credits and incentives worth $600-million or it will lose many more jobs.

The opposition parties have responded with a predictable call for immediate action – presumably, activity being judged a suitable substitute for achievement.

Conservative idleness is to blame for hundreds of layoffs in Quebec, said Liberal MP Pablo Rodriguez in a release – a torpor he said is explained by their blind ideology. The NDP website has a tinsel and holly graphic that states: All I want this holiday season is action on the economy.

Some criticism is warranted. The government blundered in a fall fiscal update that even its alleged author, Finance Minister Jim Flaherty, is said to now believe was “too rosy” in its predictions.

Mr. Flaherty’s defence is that he was right at the time. This inspires the same level of confidence as the TV weatherman who, on the eve of the Great Storm, reassured viewers that the woman who’d rung to say there was a hurricane on the way was mistaken. Thereafter, if he predicted sunshine, people carried their umbrellas.

But Mr. Flaherty will be judged ultimately on his budget and some clues are emerging that suggest it will be based on a sound strategic economics, rather than showy, partisan politics.

There will be relief for the auto industry – the government has no choice, even if it is tempted to let the Big Three solve their own problems. And Mr. Flaherty has already indicated his willingness to increase and accelerate infrastructure investment plans that are in the pipeline and which might have an impact in the short term, when stimulus is needed.

But the word in Ottawa policy circles is that much of the new spending will be geared toward investment in skills retraining. Evidence from the U.S. suggests that the proceeds from a broad-based tax cut are stuffed under the mattress in times of grave uncertainty.

This has led many policy makers to conclude that the economic crisis represents an opportunity to invest significant funds in retraining workers, so that when we emerge from this downturn, we are in better shape and have a more productive workforce.

The mechanism for this is likely to be an enriched Employment Insurance program, where newly unemployed workers are paid to go back to community college or university to tune up their skills or learn an entirely new craft. In the short term, we are going to have too many people in the labour market, and this option would mop up many of those workers. In the long-term, we are going to have a skills shortage, which would be partly offset by a more productive, better-trained workforce.

David Johnson, professor of economics at the school of business and economics at Wilfrid Laurier University, said unemployed workers are a good group to target. “You’re directing a tax cut to people who will spend it,” he said. He said he expects the government to create a more level playing field across the country when it comes to who qualifies for EI, so that an unemployed auto worker in southern Ontario can access the same amount of benefit, for the same length of time, as an unemployed fisherman in Newfoundland. At the moment, Ontario workers are disadvantaged when it comes to coverage and benefit period.

Glen Hodgson at the Conference Board of Canada released a paper on Tuesday that proposed injecting temporary fiscal stimulus of up to 1% of GDP – $10-13-billion – and suggested the government’s top priority should be to immediately enhance federal programs that provide direct support for the unemployed.

Injecting cash into the EI program would have an additional benefit for a Conservative government, averse to picking winners and losers – it would treat all industries the same way. The alternative is a line-up of would-be corporate panhandlers, all hoping that the government forgets they were successful entrepreneurs during the market boom, mere months before.

If they get it right, with a measured and sensible intervention, the Conservatives will go a long way to restoring confidence – not only in the economy, but also in their ability to govern.